Infosys Founders Talk Succession

S.D. Shibulal, left, is set to retire in 2015 making way for the first non-founder of Infosys to take over as CEO of the company.

It's been barely a year since S.D. Shibulal became the chief executive of Infosys, India's second-largest software exporter by sales.

So it is strange to hear top company officials already comment on a future leadership change, as they have over the past week.

Infosys executive co-chairman S. Gopalakrishnan last week was getting ahead of himself, telling the Business Standard that he would prefer someone from within the company to take the "driver's seat," once Mr. Shibulal, who is 57, retires.

Mr. Shibulal, who took over from Mr. Gopalakrishnan as CEO officer last year, is set to retire only in 2015.

Mr. Shibulal, in an interview to news channel CNBC-TV18 last week, singled out three people in the company’s top management who he thought would be in a good position to take over from him when he retires.

Market watchers say Infosys's recent comments on succession planning has to do with mounting criticism over sagging sales growth and legal troubles in the company's largest market, the U.S.

Mr. Shibulal, in an interview with The Wall Street Journal last week, sought to counter criticism that the latest instance of weak financial performance at Infosys stems from the management's excessively conservative business strategy.

A company that “has been around for 30 years cannot be defined in one or two quarters, or one or two years," Mr. Shibulal said.

There’s also interest in who will eventually replace Mr. Shibulal as this person will be the first non-founder to take over as CEO for the first time in the company’s history.

Since its inception in 1981, Infosys has always been led by its founders. These include N.R. Narayana Murthy, the face of India's software revolution. Mr. Shibulal will be the last of the company's seven founders to exit.

So far, the main contenders for the position of CEO are V. Balakrishnan, Infosys' chief financial officer since 2006; B.G. Srinivas, the head of the company’s European operations and financial services business; and Ashok Vemuri, who oversees Infosys' North America market and manufacturing practice.

"While Ashok Vemuri and B.G. Srinivas may satisfy the need for more continuity, will they deliver the change Infosys so urgently requires? This is the big question," says Peter Schumacher, the president and chief executive of Germany-based consulting firm Value Leadership Group Inc.

Messrs. Balakrishnan, Vemuri and Srinivas were inducted into Infosys' board of directors last year. The board of Infosys will take the final call on the next CEO.

Critics say the frequent leadership change is to blame for Infosys's current woes. “The CEO rotation strategy at Infosys has diluted the power of the office of the CEO and hurt performance," says Mr. Schumacher. “When the CEO changes every few years critical issues don't get addressed,” says Mr. Schumacher, adding, “eventually the organizational dynamics can get very messy and difficult to control."

Its shares lost as much as 42% in a wild swing from their highest in one year of 2,990 rupees ($54) in February to the lowest of 2,101.65 rupees in July.

During this period the shares of rival TCS saw a sharp climb. TCS shares touched their highest in 52 weeks at 1,378.50 rupees last Thursday. Infosys shares were down 0.9% at 2,348.00 rupees in morning trade Tuesday, while TCS shares were down 0.8% at 1,328.50 rupees. The benchmark Sensitive index was down 0.1%.

The company's affinity to high profitability and its focus on higher margin contracts, which are fast drying up in a volatile economic environment, have significantly dented its sales growth over the last six quarters.

Analysts also accuse Infosys of sitting on a cash-pile of more than $4 billion, without meaningfully deploying it, thus creating no value to its shareholders.